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January 18, 2011

2010 Q4 Earnings: Schwab Income Falls on Yield-Plus Charges

Net new assets in Advisor Services, though, rise 27% to $16.4 billion in the last quarter of 2010.

Charles Schwab said Tuesday that net income fell 27% in the fourth quarter of 2010 to $119 million, or $0.10 per share, vs. $164 million, or $0.14 per share, in the same period of 2009. Without charges relating to its YieldPlus Fund, Schwab’s fourth quarter net income was $218 million, up 33% over the year-ago period.

For the twelve months ended Dec. 31, 2010, the company’s net income declined 42% to $454 million, or $0.38 a share, from $787 million, or $0.68 cents a share, in 2009.

Excluding charges associated with YieldPlus and other issues, net income for 2010 was $775 million.

“We currently serve a record $1.57 trillion in client assets, which represents an 8% compound annual growth rate since 2000 – a testament to the appeal of our approach,” Chairman Charles Schwab (left) said in a press release.

Net revenues in the fourth quarter of 2010 increased 14% to $1.127 billion vs. $986 million in the year-ago period. For the year, net sales improved 1% to $4.248 billion vs. $4.193 billion in 2009.

Analysts surveyed by FactSet had anticipated earnings of $0.14 for the quarter, while analysts’ estimates compiled by Yahoo! Finance had expected $0.10. Both groups had forecast revenues of $1.1 billion.

Schwab’s shares were down about 1% to $18.60 in early-afternoon trading Tuesday.

Revenues from asset management and administrative fees grew 14% year over year in the fourth quarter to $497 million, an increase of 6% over the third quarter of 2010. For the full-year, though, they were $1.82 billion, down from $1.88 billion in 2009.

Advisor Services assets improved 11% year over year to $649.9 billion in the fourth quarter, a 7% increase over third-quarter results

And net new assets for Advisor Services were $16.4 billion in the fourth quarter, a 27% jump over the same year-ago period and a 105% increase over the third quarter. They included $1.5 billion in assets from Schwab’s acquisition of Windhaven in the fourth quarter of 2010.

For the full year, net new assets in Advisor Services were $49.3 billion, up about 19% over $41.3 billion in 2009. Net new assets for the firm, however, declined to $26.6 billion in 2010 vs. $87.3 billion in 2009 due to $51.5 billion in outflows associated with the de-conversion of a mutual fund clearing-services client in the second quarter of '10, Schwab said in its earnings report.

New brokerage accounts totaled 225,000 in the fourth quarter, an 11% jump year over year and a 34% increase over the third quarter.

The number of active brokerage accounts neared 8 million, a 4% improvement vs. last year and a 1% jump vs. the third quarter of 2010.

The number of clients' daily average trades totaled 395,500 in the fourth quarter, up 2% from the same year-ago period and a jump of 12% from the third quarter.

Average revenue per trade dropped 11% year over year in the fourth quarter to $12.07, a 2% decline from the third quarter.

“Our business momentum continues, with $11.4 billion in net new assets for December alone, and we’re demonstrating significantly improved financial performance, with fourth quarter revenues up 14% over year-earlier levels and profits up solidly after adjusting for charges,” said CEO Walt Bettinger in a statement.

“We believe the importance of sustained investment in our clients is reflected in the strength of our metrics,” Bettinger said.

The number of brokerage-account openings rose by 5% in 2010, he says, and topped 750,000 for the fourth-consecutive year. Net new assets were $78.1 billion -- excluding significant one-time flows – and were down from 2009.

Still, Bettinger explains,total client assets were up 11% vs. last year’s fourth quarter to $1.57 trillion, representing a 7% increase over the third quarter of 2010.

Schwab’ recent results were hurt by a regulatory reserve of $119 million in the fourth quarter of 2010 and a class-action litigation reserve of $196 million in the first quarter of 2010 associated with Schwab’s YieldPlus Fund.

In the third quarter, the company took a $132 million charge related to losses recognized by its money-market mutual funds.